Govt kicks off long-term ERP strategy

news The Department of Finance and Deregulation has kicked off a major effort to examine the Federal Government’s use of enterprise resource planning systems, with a view to optimising how the public service uses such platforms in the long-term.

ERP systems are some of the most commonly used technology platforms in government and the private sector, consisting of software that supports basic processes of an organisation — ranging from order processing and fulfilment, inventory management, finances, accounting and so on. Perhaps the most well-known aspect of the ERP systems used in government in Australia is payroll, owing to the large number of staff which work for major government departments, especially in areas such as health, education and law enforcement.

The Department of Finance and Deregulation is broadly responsible for setting whole of government IT purchasing policy in the Federal Government, principally though the offices of the chief information officer and chief technology officer.

The department added: “This Project will involve analysing public service business functions, including financial, administrative and operational processes and systems. The analysis will consider core roles and responsibilities with a view to identifying opportunities to improve efficiency. The Project as an opportunity for the public service, to establish a transformational, progressive approach to government business architecture.”

The end result of the examination is that Finance will provide advice to the Government on the issue through a report to be published several years hence in 2015.

“The devolved nature of the public service has resulted in Commonwealth entities, over time, implementing various, often customised ERP systems or systems for key functions,” Finance wrote in its tender documents. “This has afforded Commonwealth entities the opportunity to pursue systems and processes that best meet their needs. However the fragmented approach may also have reduced the overall efficiency and effectiveness of government operations.”

“Finance recognises the complexities, specialities, and constraints of Commonwealth entity requirements for ERP operations. However, Finance sees the Project as an opportunity for the public service, to establish a transformational, progressive approach to government business architecture.”

The first step for Finance is to kick off what it described as an “environmental scan”. This will take place over the next few months to December this year and will see the department consult the IT industry on the various solutions available. The next step after that will be research and analysis through to July 2014, with a road map/implementation options be developed through to December 2014, and the report to Government to be produced by June 2015. However, the department noted that its effort “may not result in an approach to market in any form for ERP services”.

As the preferred approach to remediate the problems, several states have taken the approach of choosing to focus on the new generation of cloud computing services. For example, the NSW State Government has claimed initial success in its high-profile deployment of a cloud-based ERP consolidation project at the NSW agency of Trade and Investment, claiming that so far the project has been delivered “on time and on budget”, but with a large chunk of the work still to go.

opinion/analysis
This effort by Finance is quite fascinating. It says a number of things to me straight away.

Firstly, this is clearly not an initiative of the new Coalition Government, given that Tony Abbott’s new cabinet hasn’t even been sworn in yet and thus has no official power over departments like Finance. This ERP effort must have been prepared for the previous Labor Government, and been in stasis since the election’s Caretaker period kicked off. However, it seems likely that Finance has at least touched base with someone from the new Cabinet before releasing the document today.

Secondly, this effort takes place in the context of the fact that virtually every IT shared services effort across every state government in Australia over the past decade has failed. Finance cannot, it simply cannot, drag the Federal Government into an IT shared services situation with respect to ERP. It would fail, as every other similar initiative across Australia has failed. This means that Finance is likely planning something different — a middle path between IT shared services forced on departments and agencies and leaving them to their own devices. It’ll need to be done diplomatically and carefully, given the pitfalls on either side.

Thirdly, it is apparent that this effort by Finance will explicitly target small to medium-sized agencies. Super-departments like Defence and the ATO have extremely complex ERP needs, and will never try and match the approach taken by other agencies. Finance’s move here implies that there is a degree of ERP upgrades needed within quite a few small to medium departments in the Federal Government, and that it would be useful to have some degree of coordination between those upgrades in the medium to long-term. The larger agencies such as Defence will likely be consulted but not directly brought in to the process in terms of new implementations.

Lastly, this effort also comes as the states are looking to cloud computing solutions to resolve their ERP woes. Finance is likely aware of this, and I would say that this approach to the market today is precisely targeted at getting medium to long-term visibility in terms of where the next-generation of cloud computing services is going.

SAP, Oracle, Microsoft, NetSuite and other companies with ERP solutions … start your engines. This is going to be a fascinating project for the Federal Government. So far it looks as though this is a sensitively and intelligently setup project. It’ll be interesting to see where it goes. That 2015 report will make for fascinating reading.

2 COMMENTS

There is absolutely no reason that software should be sold for the prices, and implemented in the ways that it has traditionally been.

But there is hope.

What cloud accounting vendors are doing at the entry-level should offer hope to companies looking to buy business systems in the future. Pricing is simple, and affordable. The number of new cloud vendors are almost too many to count, competition is stiff, and the customer is king.

Unfortunately for companies to move up to the next level of business system, the so called mid-market, is still difficult.

A key reason for this is a lack of choice. Today you can count all the mid-market cloud ERP vendors on one hand.

This lack of choice impacts adoption. So the adoption of cloud-based accounting and ERP systems is slow as well in this segment.

The situation is made worse by the price difference between entry-level solutions that run USD 2-3K/Year and mid-market offerings that run North of USD 50K to start and end up being USD 100K+ when finally fully deployed.

Further complicating things are the tricky pricing schemes and terms of service that make it hard to figure out what these systems will eventually end up costing and how costs will escalate as the company grows. Seems like the government has finally decided to do something about that.

Vendors tout ROI, but the fact of the matter is that ROI is in the eye of the beholder. Vendor projected ROIs are rarely if ever achieved. For most small and medium sized companies that are owner and employee owned, AFFORDABILITY is the more important consideration.

So companies with entry-level systems, more often than not, delay their move up to the mid-market, by years, making do with manual processes, spreadsheets, shared logins, and internally developed add-on applications,, till they are large enough to afford an expensive mid-market solution.

And price is not the only thing that companies like Versaccounts are changing. They are also changing the way mid-market cloud ERP systems are sold.

For example, the Versaccounts solution is sold for a fixed price of $999/Mo unlimited users and functionality with live 24x7x365 support included.

This gives customers the comfort of knowing that the TCO around their most critical business system will not change as the company grows.

No contracts are required so customers can stop using the system at any time it stops meeting their needs. And implementation is for a fixed price of $10K. This is waived completely with a long term contract.

With respect to channels, the business model is also ripe for disruption. Companies like Versacounts offer their channel partners 25-50% of subscription revenues in perpetuity.

The entry-level accounting space is well on its way to being taken over by cloud based solutions.

The mid-market is next and I expect the enterprise will follow.

In the future vendors will need to get realistic about the price of their products and the terms they are offered under.

The old ways of doing business will not be acceptable for much longer. The time has come for simplicity, transparency and fairness as a basis for win-win relationships between software publishers, channel partners and end customers.

This in fact is the most important change that the cloud is forcing on all of us.

An interesting development as you say Renai … good pickup. Similar thinking seems to be percolating in Victoria.

Agile thinking + cloud services = innovation and productivity.

NSW Trade and industry is the best example so far of this equation in action, but it is interesting to ponder how this approach might be rolled out across multiple departmental portfolios and otherwise autonomous agencies. A big part of the apparent success of the Trade and Industry project is strong top down leadership and a commitment to leveraging the standardized SAP Business By Design functionality … if necessary changing org structures and business processes to fit the system etc. This is possible because all of the agencies involved are within one department and report to one Director General.

We seem to be getting to the point where the cloud services side of the equation is maturing nicely. A mature enterprise-grade cloud service is a configurable multi-tenant shared service that actually works. It is explicitly engineered to support a diverse range of customer needs while still creating standardization and economies of scale. Yay!

The ‘agile thinking’ part of the equation, however, is more problematic. Executives need to change their mindset about how their business processes work and how ICT can be leveraged to enable innovation and productivity.

Reflecting on the past decade or so of history in the quest for corporate services efficiencies in government my view is that the most important thing is to avoid creating the dynamics of a closed internal socialist economy – typified by in-house shared services thinking. More agile thinking is required. This will involve setting up an environment where there are open competitive incentives for agencies to participate in a WoG corporate services/ERP arrangement …as opposed to perverse incentives for them to obfuscate, drag the chain, undermine, white ant etc.

The way to to this in a cloud services world is to implement one or several SaaS ERP arrangements in representative agencies (to prove that the solutions work … “cloudy is as cloudy does”) and then create incentives for other agencies to unilaterally migrate into the new SaaS platforms for their own benefit. Each agency Secretary or CEO would have the freedom to choose, and 100% accountability for the outcomes. Each agency could act pretty much unilaterally because each is simply choosing to become a customer of a service operated independently of the government (perhaps implemented as a government community/private cloud services arrangement on shore … though this would unfortunately create scaling/performance constraints and complexities). The success, therefore, is in the hands of the agencies. All that is required is transparent reporting of how they are travelling to Cabinet and direct interest from the Minister of Finance to incentivize early adopters and embarrass/penalize laggards.

The thing to avoid is any kind of centrally mandated “forced march” to a common ERP solution because this creates the seeds of failure from the outset by allowing agencies to absolve themselves of accountability for the outcomes. All care … no responsibility … its YOUR strategy … not mine.

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